Why Coal Is Dead: A Conversation with Peter Zeihan (TX, '15)

From Knowledge Leaders Capital (KLC): With energy setting records as the worst performing sector year-to-date, we were curious about Geopolitical Strategist Peter Zeihan’s (PZ) thoughts on fossil fuels in the context of the United States’ continued retreat from the global theater.

We recently caught up with Peter to ask his opinion. Below are excerpts from that conversation.

KLC: What are your thoughts on fossil fuels given the United States’ continued retreat from the Bretton Woods era and global trade system?

PZ: Coal is dead regardless of what happens with the Trump administration. Because natural gas is a waste product of the shale sector, it’s flooding in and taking the entire market. Shale production has doubled from 20% of the fuel mix to about 45% today, and it will definitely cross the 50% threshold before the end of the decade.

Alternative power sources are not yet in a position where they can make up the difference because most power demand in the United States happens after dark in the winter. So if you’re in the northern tier of states, solar just isn’t appropriate. Now if you’re in Texas and the belt going from Texas to Southern California, solar is brilliant in that zone. And in terms of electricity generated as opposed to installed capacity, I expect electricity generated from solar in Texas to increase by a factor of five in the next six years. Not because Texans are green, but because Texans can do math. So don’t look to how many panels are up. Look at how much power actually comes from it that is actually fed into the grid and used. This destroys coal. It makes solar kind of a wash outside of the Sunbelt.

KLC: What’s the most promising alternative source, in your opinion?

PZ: The next technology to keep an eye on is wind. The new towers that are going up aren’t just 30 meters tall, they’re 70 and 80 meters tall, which means they tap a stronger, more reliable wind current structure. And they can be built almost anywhere. The primary wind zone extends from the Great Plains into the Rockies and all the way to Chicago, and the offshore capacity on the East and the West Coast is phenomenal. So we might be able to get 15-20% of base load capacity nationally from wind. The infrastructure build-out time is long, however. Building an 80-foot-tall wind tower is as hard as it sounds. And, if you think there was a “not in my backyard” problem with the towers that were 30 meters tall, these new ones can be seen from 11 miles away.

KLC: Would more wind towers be good for copper prices?

PZ: In theory, yes, but only moderately. Existing wind towers only work in specific areas, so the electricity has to be wired long distances (West Iowa to Chicago, for example). However, the taller towers work in a wider range of areas and so can be positioned closer to demand. Many more towers, but less of a need for long-haul transmission.